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Saturday, October 04, 2008

The US Congress on Friday passed the Bush administration’s $700bn financial rescue package after a tense week on Capitol Hill, but stocks fell sharply afterwards amid continuing turmoil in the credit markets.

The 263-171 vote in the House of Representatives, which rejected an earlier proposal only four days before, came after $149bn in tax breaks was added to the bill to help sway reluctant legislators to back the plan.

President George W. Bush immediately signed the legislation, which he has lobbied for vigorously in recent days.

But in comments after the vote, the president sounded a sombre note about the crisis, which has coincided with a rise in opinion polls for Barack Obama, the Democratic presidential nominee.

He told Americans they should expect the legislation to take some time to make its full impact on the economy. “Exercising the authorities in this bill in a responsible way will require careful analysis and deliberation. This will be done as expeditiously as possible, but it cannot be accomplished overnight.”

Reaction on Wall Street turned increasingly negative after the vote. The S&P 500 – which rose as much as 3.6 per cent ahead of the decision – fell 1.4 per cent, closing below its level on Monday after the House voted against the bill. It was the worst week for US stocks since markets re-opened after the September 11 2001 terrorists attacks.

The market moves came as data showed a big fall in US jobs in September. The Bureau of Labor Statistics said non-farm payrolls fell 159,000 last month, the biggest monthly fall since March 2003. The US Treasury also confirmed that California had asked it for emergency funding in the event that credit markets failed to return to normal.

Barney Frank, chairman of the House financial services committee, vowed that Congress would next embark on a regulatory revamp of Wall Street and the US banking industry. “We will be back next year to do some serious surgery to the financial structure,” he said.

The decision in Washington came as Europe’s central banks took unprecedented emergency measures. Mervyn King, Bank of England governor, blamed “extraordinary conditions” for a second £40bn injection of three-month money into British banks on Monday. The European Central Bank said it would widen its quick tenders of cash from the normal 130 banks to all of the 1,700 banks it deals with.